Inflation drops to 13%
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CPIX Inflation has dropped to 13% according to figures released yesterday by Statistics South Africa.
Most of the news organisations are covering this story today. Here is what they have to say.
The Times lead with the headline "Inflation loses its bite". They pointed out that the main drivers of the reduction in inflation were the slower rise in food prices and cheaper fuel prices with their related effect on transport costs.
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In the high inflation environment that has been in existence this year, both of these factors have been running consistently above headline inflation figures.
The danger however was pointed out to be uncertainty surrounding future electricity prices. Business Day reported that Eskom faces an interest bill on the borrowing that it has taken to finance its expansion. This interest bill may run up to R120 billion! The effect of this is that if it is passed onto consumers we could see extra electricity bills next year.
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Business Day also reported on the inflation story commenting that it boosted local markets and helped to raise hopes of an interest rate cut next near.
They also pointed to lower than expected wage hike for domestic workers as being a driver of slower rising consumer prices.
While the signs seem favourable for a rate cut early next year, it was also pointed out that there was a considerable degree of forecast risk associated with CPIX at the moment due to international currency market volatility. Some of their surveyed economists were even plumping for a rate rise with no cuts in sight until the middle of next year.
Business Report went with the view that this was the start of the downward trend, that inflation has now peaked and that it should begin to get better now.
They cautioned that although inflation might have peaked the December meeting of the Monetary Policy Committee would be too soon to start cutting rates.
Trevor Manuel said in his mid term budget that inflation was expected to return to the target range of 3-6% by the third quarter of next year. This was seen as confirmation that peak inflation has been surpassed.
The Dispatch reported that there was a decrease in consumer borrowing, with private sector credit extension falling to less than had been predicted.
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Finally iAfrica interviewed four economists on the inflation figures. All of them were of the opinion that this was good news, although notes of caution were expressed especially regarding the value of the Rand and the fact that its weakening will only show up in the next set of inflation figures.